In January 2023, the MPE Board of Directors at that time voted to provide notice of withdrawal from Tri-State Generation and Transmission. In February 2024, MPE announced a 20-year power supply agreement with Guzman Energy, effective February 2025. For the complete power supply timeline and much more information on this milestone for our cooperative, please see below. Additional information will be added as our Power Supply Deep Dive in our monthly Plugged In newsletter through October 2024.

GET TO KNOW GUZMAN

Guzman Energy was founded in 2013 and is a wholesale power provider. Guzman helps communities find better energy options, offer them an executable wholesale energy strategy, and then serve them that power solution. The products and services Guzman sells and manages span capacity, energy, transmission, and renewable attributes. Guzman provides customized electricity solutions that communities count on for 24/7 reliable power, empowering communities with local decision-making in the energy transition.

Guzman Energy predominantly serves rural communities seeking stable power prices and local control over the type of power generation used to serve their electricity needs. Guzman knows how to partner with communities wanting local control and distributed power generation that creates new economic opportunities. Smart wholesale energy strategies improve economic vitality for communities and prosperity for future generations. Guzman helps make that happen. Guzman Energy’s other co-op customers, as of June 2024, include Delta Montrose Electric Cooperative, Grand Valley Power, Holy Cross Energy, Kit Carson Electric, Yampa Valley Electric, and United Power.

Guzman Energy is developing an asset portfolio to accelerate the energy transition and expects to comfortably meet Colorado’s mandated carbon reduction goals. Specifically, Colorado has mandated 80% carbon-free power by 2030. Guzman Energy is building and purchasing power generation with the right economic and environmental characteristics to supply its power portfolio. Guzman achieves this through short- and long-term contracts for energy and capacity.

POWER SUPPLY TRANSITION HISTORICAL TIMELINE

The MPE Board at that time voted to request a “Make-Whole” or “Buyout” number from Tri-State Generation and Transmission. The Board sent this request shortly after Tri-State suspended the issuance of Make-Whole Number and Shopping Letters, asking that Tri-State provide a Make-Whole number when the suspension would be lifted in 2020

The MPE Board voted to participate in the optional Partial Requirements Contract, a product Tri-State was offering in response to requests from Tri-State member co-ops for greater flexibility, lower cost of power, diversity of power supply, local renewables, and so on. Participating Tri-State members could achieve these goals through a buy-down payment (BDP), allowing those members to purchase a certain amount of power from a supplier other than Tri-State. MPE and six other co-ops attempted to take advantage of this option with the understanding that MPE would soon be able to self-supply or purchase from another energy provider up to 50% of MPE’s power needs. The details of the BDP became contentious for Tri-State, ended up before the Federal Energy Regulatory Commission (FERC), and this option was withdrawn from consideration at FERC in 2024. When the BDP process stalled out at FERC, in late 2022, MPE began to look at the option for a full exit.

The MPE Board voted to provide notice of withdrawal to Tri-State.

MPE publishes a request for information (RFI) for potential power supply providers. MPE received four responses to the RFI.

The MPE Board set a power supply goal as a part of the organization’s strategic planning process: “Negotiate a power supply contract that provides reliability, affordability, and flexibility for the (MPE) membership.” During the discussion, the board ranked the priorities of a new power supply contract: reliability, affordability, flexibility, organizational strength, and a term of 15-20 years.

The MPE Board reviewed the RFI responses and gave the General Manager direction to proceed with negotiating a wholesale power supply contract with Guzman Energy, as that organization’s response best fit the priorities outlined by the board. Proceeding with Guzman Energy was also the staff recommendation.

MPE announces a 20-year power supply agreement (PSA) with Guzman Energy.

 

Reliability

  • Reliability always has been and will always continue to be a priority of our members, board, management, and staff. Guzman will have the responsibility of maintaining a balanced set of resources to make sure “the lights stay on” for us and their other power distribution customers.
  • Guzman has a mix of resources, including coal, gas, wind, and solar. For us and the other Colorado co-ops, Guzman and other power suppliers (including Tri-State) are mandated to continue to increase the percentage of renewable energy sources to meet state
  • Guzman owns generation assets and purchases power from across the U.S., ensuring that electricity will be available even if a certain region or regions are hit by a severe weather event or other issue causing stress on the power grid.

RESOURCE ADEQUACY

MPE’s contract with Guzman Energy includes resource adequacy considerations above current requirements. Simply put, resource adequacy ensures that power suppliers have more than enough power to continuously meet the need for electricity despite fluctuations in power generation and consumption. As load growth continues with more electrification and power suppliers move toward a generation portfolio that relies more heavily on renewable sources, which are more variable than traditional base load generation, resource adequacy requirements will likely increase. Robust resource adequacy was an important factor in our new power supply agreement with Guzman.

TRANSMISSION PARTNERSHIPS

MPE will continue to have transmission partnerships with Tri-State and the Western Area Power Administration (WAPA). MPE will be served through the same transmission systems that serve us today. MPE is working through the contractual changes that are necessary with both WAPA and Tri-State to move forward as ongoing transmission customers after Guzman becomes our power provider. Tri-State and WAPA are both required to meet the same reliability standards on the transmission system, regardless of who MPE’s power supplier is. Guzman will not be responding to transmission outages; the work on transmission systems will continue to be done by the transmission owners (Tri-State and WAPA). Guzman will not be responding to distribution system outages; that work will continue to be done by MPE line crews.

RELIABILITY IMPROVEMENTS THROUGH INCREASED CARVE-OUT

Area community generation projects and those that support MPE’s electric grid will be priorities for the future increased carve-out – or the portion of power that can be purchased outside the power supply agreement (PSA) – under Guzman Energy. One of the driving factors behind the Board’s decision to move toward a new power supplier was for greater f lexibility in purchasing power from other sources, including local generation projects from members. The Board directed MPE staff to move forward with a plan to have three rounds of request for proposals (RFP’s) over the first two years of the Guzman contract to fulfill the 2 MW initial carve-out. Details and scheduling of the RFP’s are yet to be determined, but an early plan of the RFP roll-out includes an RFP round dedicated to prioritizing resiliency, reliability, and system benefit.

EXAMPLE OF RESILIENCY / RELIABILITY / SYSTEM BENEFIT PROJECT

Power generation and/or storage to support reliability for critical community needs, such as emergency services or water/sewer. Pricing and development for future resiliency, reliability, and flexibility of system operations will be the priorities for the RFP process for PPA’s for the remaining bulk of 60,000 MWh with the Guzman carve-out.

 

 

FLEXIBILITY

Under Tri-State, MPE had less flexibility to meet members’ requests for local generation projects as there was a 5% carve-out cap. This means that only 5% of MPE’s total load could be purchased from a source other than Tri-State, including locally generated power or MPE-owned generation. The 5% carve-out left no room for additional local generation projects. Under the new contract with Guzman Energy, MPE has the flexibility to purchase an additional 60,000 MWh from sources other than Guzman. In addition to this new larger carve-out, all the current local generation will be grandfathered in, resulting in a nearly 25% carve-out. This is near ly five times the previous carve-out, giving MPE much greater flexibility.

GRANT FUNDING OPPORTUNITIES

The flexibility for direct contracting under the Guzman power supply agreement also opens a plethora of grant-funded opportunities. This includes the New ERA program that, if awarded, could bring up to $100 million to MPE for the power supply transition and possible projects to improve our grid’s reliability and resiliency. These funding opportunities would not have been possible under the constraints of our Tri-State contract.

MANAGEMENT STRUCTURE

Another aspect of flexibility benefit from this power supply change involves management structure. MPE has a one-on-one relationship with Guzman and agreements/adjustments can be made quickly to adapt to the rapidly changing energy industry.

COST STABILITY

The power supply agreement (PSA) with Guzman Energy gives MPE price certainty, stability, and flexibility for 20 years starting in February 2025. Since the cost of power is MPE’s largest expense, securing wholesale power at a fixed rate helps ensure greater cost certainty for the co-op and, therefore, greater rate predictability for our membership. It also provides greater flexibility to MPE to customize solutions specific to our members’ needs and to pursue government grants in a way that was not previously possible. MPE is a not-for-profit cooperative, so the Board sets rates on an annual basis to cover the cost of providing electricity to the membership. MPE anticipates higher rate increases in the first 1-3 years of the power supply transition, followed by smaller rate increases for the remainder of the 20-year contract. Although MPE’s rates for members have not been set for 2025, after the transition to the new PSA, MPE management anticipates reasonable, consistent rate increases throughout the length of the Guzman contract.

FORMULA RATE VS. FIXED PRICE

Under the Tri-State membership contract, MPE did not have any control of rates. Tri-State could charge MPE its portion of any costs Tri-State incurred through a new rate structure, known as a “formula rate.” Any issues MPE had with this rate would have to be litigated in front of the Federal Energy Regulatory Committee (FERC), a costly process. At the time MPE gave notice to withdraw from Tri-State, the Board had concerns that the new rate would drive unexpected rate increases that would make it more difficult for MPE to have certainty around power supply costs going forward. The opportunity to chart our own course with greater local control, flexibility, and increased price certainty led the Board to choose to pursue the power supply agreement with Guzman. It gives MPE a fixed price for power each year. This helps to minimize wholesale power supply cost fluctuations, allowing for more predictable rate increases. Alternatively, under a formula rate structure MPE would face uncertainty regarding imposed rate increases.

Power Supply Transition FAQs

o The change in power providers is and has been an MPE Board decision.

o The decision to exit from Tri-State:

  • In January 2023, the MPE Board (at that time) gave official notice of withdrawal to Tri-State. Spanning several years prior to this decision, the MPE board took a number of steps towards making the decision to exit Tri-State. A few of these steps included: asking for an exit number in 2019, participating in the proposed partial requirements contracts that Tri-State considered offering, and participating in Tri-State contract committee processes.

  • In January of 2023, when the MPE Board (at that time) made the official decision to withdraw they cited the following reasons: concerns over the perceived financial stability of Tri-State, challenges associated with price predictability Tri-State, and flexibility constraints under Tri-State which made it difficult for MPE to meet the needs and requests of our members.

  • Financial stability – In January 2023, one of the major concerns that led to the Board making this decision was the Board’s uncertainty regarding Tri-State’s financial outlook, which included a rising amount of debt at Tri-State, the withdrawal of United Power (Tri-State’s largest customer), and the fact that Tri-State’s credit rating had been downgraded.

  • Price stability – Leading up to MPE’s decision to withdraw, Tri-State was working to get a new formula rate passed through Federal Energy Regulatory Committee (FERC). Through this proposed rate, Tri-State would ensure it recovers its expenses through the rates paid by its members. The MPE Board had concerns that the new rate, once in place, would make it more difficult for MPE to have certainty around power supply costs going forward.

o The decision to sign a Power Supply Agreement (PSA) with Guzman Energy:

  • Once the Board decided in January 2023 to exit from Tri-State, a search for a new power supplier began. Guzman submitted a complete and strong response to MPE’s request for information (RFI) for potential power providers. Guzman was selected by the Board as the top of the four RFI respondents.
  • In the PSA with Guzman, MPE has a fixed price for power every year, which helps to minimize wholesale power supply cost fluctuations.

 

o One of the major reasons the MPE board chose to transition power providers was for price stability. Since the cost of power is MPE’s largest expense, securing wholesale

power at a fixed rate helps ensure greater cost certainty for the co-op and, therefore, greater rate predictability for our membership.

o MPE is a not-for-profit cooperative, so the Board sets rates on an annual basis to cover the cost of providing electricity to the membership. Although the rates have not been set for 2025, after the transition to the new PSA (effective Feb. 1, 2025), MPE management anticipates reasonable, consistent rate increases throughout the length of the Guzman contract.

o MPE anticipates higher rate increases in the first 1-3 years of the power supply transition, followed by smaller rate increases for the remainder of the 20-year contract.

o MPE will continue to have transmission partnerships with Tri-State and the Western Area Power Administration (WAPA), MPE will be served through the same transmission systems that serve us today.

o Transmission prices and reliability metrics are federally regulated, and our agreements with Tri-State Transmission and WAPA are subject to that regulation.

o Guzman owns generation assets and purchases power from across the U.S., ensuring that electricity will be available even if a certain region or regions are hit by a severe weather event or other issue causing stress on the power grid.

o Guzman will not be responding to transmission outages; the work on transmission systems will continue to be done by the transmission owners (Tri-State and WAPA).

o Guzman will not be responding to distribution system outages; that work will continue to be done by MPE line crews.

o Just as with Tri-State, Guzman will have the responsibility of maintaining a balanced set of resources to make sure “the lights stay on” for us and their other power distribution customers, including other Colorado co-ops.

o Guzman has a mix of resources, including coal, gas, wind, and solar. For us and the other Colorado co-ops, Guzman and other power suppliers (including Tri-State) are mandated to continue to increase the percentage of renewable energy sources to meet state decarbonization standards.

o MPE’s contract with Guzman Energy includes resource adequacy considerations above current requirements. Simply put, resource adequacy ensures that power suppliers have more than enough power to continuously meet the need for electricity despite fluctuations in power generation. As power suppliers move toward a generation portfolio that relies more heavily on renewable sources, which are more variable than traditional base load generation, resource adequacy requirements will likely increase. This is why it was an important factor in our new power supply agreement with Guzman.

o MPE will be borrowing money from a bank to fulfill the contract termination payment (CTP). Both of MPE’s major lenders – CoBank and CFC – have offered to cover the CTP. This is a credit to MPE’s financial strength and illustrates the confidence and support the financial institutions have for this transition. The loan will be paid off over the 20-year timeframe of the Guzman contract.

o MPE’s rebate program will change, and the details are yet to be determined. Although Tri-State’s rebate program has been robust, member co-ops do pay for this service through their cost of power. MPE and Guzman have plans to coordinate on member programs, and Guzman has committed to being a strong partner through community investments of $50,000 annually.

o While rebate programs can be popular, a small percentage of MPE members took advantage of our programs on an annual basis. We are hopeful that, in partnership with Guzman, we can develop new member programs that benefit a greater percentage of our membership.

o MPE currently has around $22 million in capital credits through Tri-State. The portion of these capital credits that have been obligated to MPE members will be paid back to the members over the next 20 years, as always.

o MPE capital credits will continue to be returned to members as is written in MPE’s bylaws. The fact that we are purchasing power from a different supplier does not change that.

o Through this power supply transition, MPE will continue to be a not-for-profit cooperative. Our cooperative business structure is not changing. Many electric cooperatives across the state of Colorado and the nation purchase power from entities that are not cooperatives.

o There is a misconception that certain members drove the power supply transition for environmental reasons. There was not a membership push or demand for this change.

All power suppliers in the state (including Tri-State and Guzman) are moving towards the exact same state-mandated decarbonization requirements.

o This decision was made by the Board of Directors, which is elected by the membership of MPE. The Board made this decision after years of working with Tri-State to try to resolve issues related to price certainty, financial stability, and contractual flexibility.

o The MPE Board has a fiduciary responsibility to the cooperative and made this decision with that in mind while also looking to the long-term future of MPE.

o The membership votes on certain business of the cooperative: election of directors, changes to articles of incorporation, and specific sections of the by-laws. The Board sets the strategy of the cooperative, ensures the financial stability of the cooperative, and hires the General Manager of the cooperative. The power supply decision was within the Board’s responsibilities and authority.